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Four things workers nearing retirement should consider

Odds are that you're anything but average, but for a moment, let's pretend you are. And, if we pretend you're an average 60-year-old with a 401(k) plan, we may surmise that you don't have enough saved for retirement.

According to a recent study by the Employee Benefit Research Institute and the Investment Company Institute, 401(k) participants in their 60s had an average account balance of $144,000 at the end of 2009. Workers in their 60s who have been participating in the same 401(k) plan for more than 30 years have on average $197,472 in their plan.

Those numbers don't tell the whole story. They include only what that average worker has socked away in his current employer's 401(k) plan, and none of the money that he might have in a former employer's plan. It doesn't include any money in IRAs, Roth IRAs, or taxable accounts. And it doesn't reflect how much money a worker's spouse might have set aside for retirement.

"It's so hard to judge retirement adequacy with one statistic like this," said Stephen Utkus, a principal with the Vanguard Center for Retirement Research.

Nonetheless, assuming you're a bit like the average worker in your 60s with a 401(k) plan, you should be doing at least four things now.

*Build a bigger nest egg: If you're in your 60s and all you've got saved is $200,000 in a 401(k) plan, it's time to start socking more away, said Christine Fahlund, a certified financial planner and vice president at T. Rowe Price Investment Services Inc.

Using a common rule-of-thumb withdrawal rate, you would withdraw 4 percent of your $200,000 nest egg in the first year of retirement, or $8,000. That amount is likely to be inadequate. "Without a sizable pension, this will not be enough for most retirees to live on, even with Social Security benefits," Fahlund said.

*Check your asset allocation: Workers in their 60s had a much more conservative asset allocation than the average participant, the EBRI study found. At year-end 2009, they had, on average, about 32 percent in equity funds, almost 8 percent in target-date funds, 7 percent in balanced funds; 14 percent in bond funds; 7 percent in money funds; 20 percent in guaranteed insurance contracts or GICs/stable funds; 8 percent in company stock; and 4 percent in other types.

According to Utkus, it would not be imprudent if the typical worker in his 60s had 40 percent of his 401(k) invested in equities, inclusive of the percent invested in balanced funds and company stocks.

"That's not unreasonable and [is] consistent with our own approach to asset allocation by age," he said.

That said, there are participants, regardless of their age, who will still hold too-extreme equity allocations.

"My advice to all participants, but particularly those on the cusp of retirement, is to adjust their equity allocations to a sensible level, and avoid the temptation to take too much, or too little, risk in equities," Utkus said.

In general, Fahlund said T. Rowe Price recommends that investors at age 65 allocate about 55 percent of their portfolios to equities -- including growth and value, large- and small-cap, international and domestic -- and gradually reduce the allocation to stocks throughout retirement, down to approximately 35 percent in equities by age 80.

Fahlund said T. Rowe Price also recommends that investors in general hold a maximum of 5 percent of their portfolio in company stock.

Of note, workers age 50 and over can contribute up $22,000 to their 401(k) in 2011.

*Delay retirement: Of all the things that people can do to boost their retirement security, Utkus said delaying retirement, if only for two years, can go a long way toward making sure retirement is more comfortable than it might otherwise be.

"A delay in retirement of, say, just two years means two years more of savings, two years more, potentially, of earnings, and two years less of drawdown," Utkus said. "It's a powerful form of reverse compounding -- the benefits of delaying drawing down on your money."

Others agree, but add a twist. "Work longer but start playing now," said Fahlund.

She said T. Rowe Price recommends that people in their 60s consider working longer, if they can, even as they start to spend more of the money they used to contribute to their retirement plan. "These are likely to be their most vibrant years, and we wouldn't want investors to miss being able to enjoy them fully if they can," Fahlund said.

*Delay taking social security: Utkus and Fahlund also recommend delaying Social Security if possible. Delaying can mean higher permanent Social Security benefits, Utkus said.

For her part, Fahlund suggested the following tactic: "While continuing to remain employed, preferably have the larger wage-earning spouse delay taking Social Security benefits until age 70, if possible," she said.

"Generally speaking, every year a preretiree can wait to start taking benefits, the initial amount received will increase about 8 percent, in addition to being adjusted for inflation. This could result in the initial dollar amount from Social Security more than doubling by waiting from age 62 to 70 to begin taking benefits."

And, "if it becomes necessary to supplement part-time wages, consider starting to withdraw benefits for the lower wage-earner at age 66 -- instead of 62 -- if possible," she said.

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